3of 7David Wells checks plans for the Township apartments in Redwood City, one of several luxury buildings under construction to meet Silicon Valley's needs.Photo: Lance Iversen, The Chronicle

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5of 7Regis Contractors of the Bay Area is constructing a 132-unit luxury apartment building in Redwood City, named Township Luxury Apartments to meet the surge in demand by high-tech employees who want to live near work. Friday, June 7, 2013 in Redwood City Calif.Photo: Lance Iversen, The Chronicle

6of 7The 2-bedroom, 2-bathroom "Farallon" model at the
Plaza in Foster City is priced from $3,142 a month with a size from 919 to 1,026 square feet.Photo: Dennis Mayer, Sares Regis Group

Surging demand by high-tech employees who want to live near work is triggering a record-breaking Silicon Valley construction boom for apartment and condo complexes. It's a phenomenon similar to the multiunit building frenzy now in full swing in San Francisco.

"From San Francisco to the South Bay is the locus for a construction boom," said Jeff Mishkin, regional manager for Marcus & Millichap, a real estate services firm. "There are waves of demand in that area. Rents have risen; job growth is strong. People are making good money so they can pay (substantial) rents or can buy condos. It's a remarkable turnaround from zero to 1,000 miles an hour."

Santa Clara County leads the Silicon Valley building boom with 8,000 units under construction and an additional 3,100 in the near-term pipeline, said Garrick Brown, director of research for real estate services firm Cassidy Turley of Northern California.

"This is the largest amount of construction we've seen there in 20 years of tracking," Brown said. Assuming three-quarters of the new units are apartments - with the rest being condos - the new construction represents a 5 percent growth in a market with about 116,000 existing units, he said. "Ordinarily 2 percent would be considered strong growth," Brown said. "Anything over that is quite rare."

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'Pent-up demand'

San Mateo County has only recently seen activity pick up but has more than 1,700 new units slated to be completed in the next two years, augmenting its 75,000 existing apartment units. Another 1,500 are in the planning stage. "It's a bit harder to build there" because of tougher regulations and more limited land supply, Brown said.

The new projects follow a lengthy construction hiatus during the financial downturn. Real estate developers, especially those focused on multifamily housing, "are rushing back into the market to fill a need and starting to build like crazy," Brown said. "There is tremendous pent-up demand that built up during the recession when nobody was building."

Builders are courting Gen Y/Millennials by making Wi-Fi widely available and including resort-like amenities such as fitness and wellness centers (massage, Pilates, yoga, aestheticians services), dog washing, parks and child-oriented features.

All those amenities come at a cost. Asking rents for new apartments are steep - the smallest one-bedroom at the new Plaza in Foster City is about $2,600, and rents range up to $5,000 for its highest-end three-bedroom unit. But the new supply may help relieve price pressure for existing units. In addition, most cities require a proportion of new units to be offered at below-market rate for tenants at lower income levels.

"Over the past three years, the rental rate growth in the Bay Area has been phenomenal for landlords, but not so great for tenants," Brown said. "Now developers are hoping to cash in on young people with a more mobile lifestyle who are not looking to own."

Average rents across all size apartments in Santa Clara County are now just under $2,000 ($1,988), up 20 percent from their level two years ago, according to data from apartment-tracking service RealFacts. Rents in San Mateo County now average $2,166, up 25 percent from two years ago.

"We've got a dire shortage of affordable housing in the Bay Area," Brown said. "This will help, but indirectly. With so many units under construction, the level of rental rate growth cannot continue."

Downtowns take off

But most of the new construction is geared toward people who can pay a premium for luxury living. "That will flatten rents at the top of the market, but the people (in lower-cost apartments) who need the relief the most will see it last, as it slowly trickles down," Brown said.

A new influx of residents in complexes near town centers means locales once dismissed as suburban bedroom communities are coming into their own.

"From San Bruno to San Jose, downtowns have really taken off," said Rob Parker, chief marketing officer for Sares Regis Group of Northern California, one of the large multiunit developers in Silicon Valley. "They're providing amenities that residents can walk to in vibrant urban neighborhoods. There's a lot of demand for urban-type lifestyles in these locations close to employment."

Sares Regis Group has more than 2,000 rental units in eight locations in the pipeline, ranging from Foster City to San Jose in the Peninsula and South Bay, as well as Pleasanton in Alameda County, a new location for the developer.

Its Plaza in Foster City, a 307-unit luxury complex, opened in January and is about half leased. One-fifth of the units are affordable, as required by the city. Its next project: the Township in Redwood City, a 132-unit apartment complex slated to open in September.

Integrating technology

The market research-driven design considerations behind the Plaza shed light on how developers view the young tech workers they hope to attract.

"We have to power (residents') connectivity - that's almost the most important thing to provide," said Parker, the marketing chief. "When they were living in their high-tech dorms in universities across the country and around the world, they had certain expectations about wireless connectivity, and things like extra outlets or ports in their rooms. We've had to integrate a lot of the technology they're already used to."

Even working out is different these days.

"It used to be we built a big pool with a spa and fitness center, and we were good to go," Parker said. "That's all changed as attitudes toward fitness have changed. People today do Pilates, they do yoga; you can't just have a room with weight machines and some treadmills. So the Plaza has a wellness center with a massage therapist, aesthetician, a classroom for meditation and yoga."

Some basics related to space are changing, too.

"The cost of construction and land is so high that apartments are getting smaller - they have to be, to make them financially feasible," Parker said. "This new demographic is not arriving with dining room tables and big couches and desks, the things my generation would move into an apartment with. In many cases they don't even have a television set; they watch on their laptop on Hulu."

Inviting public spaces

The developers' response is to make public spaces more enticing, including places where people who work from home can meet with clients.

"We put a big-screen TV at the outdoor kitchen or the bar area by the pool and have events for sports games, Academy Awards, elections," Parker said. "They're not cocooned in their apartments watching these events, they want social interaction. It used to be you had a theater room with a big screen that sat empty most of the time; that was the big hot amenity 10 years ago. Now it's more fun to have an open flexible space that can be used all day long, a cafe with Wi-Fi, coffee, big screens - it's less static, more flexible."

Perhaps the most important amenities are those for four-legged residents.

"Most of our communities have a 'bark park' - a grassy area to take dogs outside," Parker said. "We put in self-service dog-wash stations, you've got the hose, the drain; you can rinse off your dog, and the residents love that."

Santa Clara, San Mateo counties surge

Developers are rushing to build apartment and condo complexes to meet rising demand. Here are the biggest projects finished in the first quarter.

Carolyn Said covers the on-demand economy (new marketplaces such as Uber, TaskRabbit and Airbnb that let people rent their time, goods and services), the impacts of automation and AI on labor, and the world of autonomous vehicles. Previously she covered the housing market and foreclosure crisis, winning awards for stories that shed light on the human impact of sweeping economic trends. As a business reporter at The Chronicle since 1997, she also has covered the dot-com rise and fall, the California energy crisis, the corporate malfeasance scandals, and the fallout from economic downturns.